Posted 3 years ago on May 14, 2012, 3:46 a.m. EST by Misaki
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If unemployment is such a problem, why don't people volunteer to work for less than workers in China? The answer is that the basic necessities of living, such as housing, are more expensive here in the United States. Even room-sharing arrangements cost more, at $200~500 per month, than the entire monthly income of many workers in China.

Every town has housing vacancies, and some communities even deliberately limit the construction of new buildings that would cause the number of empty housing units or amount of unused office space to rise. This artificial scarcity of housing exists because for many people, real estate is an investment and more construction would drive down prices. Empty units that do exist can remain unfilled for the simple reason that it is more profitable to wait for someone who can pay the market price than to rent a housing unit for whatever a prospective resident can afford.

The loss of utility that results from the willingness of people to pay higher prices for goods from a monopoly, in this case the monopoly of housing units existing at a certain location, is well known in economics. To put it shortly, the willingness of people to accept high prices in housing, or any other good that is sold for significantly more than its production cost, causes sellers to avoid selling to people who need that resource but are unable to pay as much. Lack of price discrimination is why the US cannot compete directly with China on manufactured goods.

What is it about the unemployed that has led to them being out of work while other people are still living comfortably? In many cases, the reason is nothing more than a lack of experience compared to other job candidates. In technical terms this means that high unemployment is not structural and more public spending on education will not help. For those not convinced by the protests led by college graduates about inequality and lack of jobs or the $1 trillion in student debt in the US, some excellent sources of data are a survey of small businesses by the NFIB which showed concern about low demand at a historical high during the recession with almost no businesses reporting the cost or quality of labor to be a problem [http://macromarketmusings.blogspot.com/2012/04/is-there-really-aggregate-demand.html] as well as the Census Bureau and BLS which collect information about unemployment in various occupations [http://krugman.blogs.nytimes.com/2012/05/09/occupational-hazards/]. Every major occupational category has seen a significant rise in unemployment, meaning that there are people with the proper credentials and actively looking for work who are unable to find any.

Corporate profits are doing fine as reported by the US Department of the Treasury, having risen by 57% to nearly $1.6 trillion per year since the first quarter of 2009 [http://www.slideshare.net/USTreasuryDept/recent-us-economic-growth-in-charts]. The only problem the economy has is a lack of work, which forces people to live off of things like food stamps and unemployment benefits funded by working taxpayers or future generations. For example, leaving taxes low now and raising them later would mean it becomes more difficult to compete against existing holders of wealth.

While polls show that a majority of people think that higher taxes and more government spending would lead to growth, the policy of growth at all costs does not have equivalent support. People are even willing to support a presidential candidate who they think avoids speaking honestly if it will lead to a reduction of government spending and waste. If we are to restore equality and opportunity to the United States, we need a different approach than socialism and taxes. We can start by examining why people feel that working harder, instead of smarter, has the greatest benefit to themselves and to the rest of society including the unemployed.

Labor participation rates for both genders have been approaching each other for decades and male participation in the work force is at a record low due to the lack of jobs. However, there has been little or no public support for measures to reduce the average amount of time spent working so that more people can find employment. A rare exception is work sharing, also known as short time compensation, which allows employees to draw unemployment benefits for a reduction in work hours, but the program is built around the assumption of full time work and is not intended to create jobs or encourage new hiring.

One explanation for why males have such a desire to earn money comes, appropriately, from an analysis of messaging data for the online dating site OkCupid. The study found not only that people frequently exaggerate their income, for example that there were "consistently 4× the number of people making $100K a year than there should be", but also that there was a high degree of correlation at most ages between the listed income of a male user of the site and the number of messages he received per week. [http://blog.okcupid.com/index.php/the-biggest-lies-in-online-dating/]

Another explanation is that males see financial success as an admirable achievement that benefits society, or simply have nothing else to do. Economist Robin Hanson once suggested that people spend too much effort on unproductive activities in an attempt to impress others [http://www.overcomingbias.com/2007/01/against_admirab.html], and many people do not realize that work can fall into this category as well.

There are two considerations that should influence the decision to work full time, for someone of either gender. The first is how much value there is in higher qualities of goods, which full time work may allow someone to purchase. The second is the effect on other members of society, and what actions by an individual will lead to the best outcomes for other people.

The effect that income and wealth have on social dynamics, by influencing the opinions of other people, distorts the prices that higher qualities of goods are offered for. These financial measures might be seen as attractive because of the stability they imply, such as access to better health care, living in communities with lower crime and more opportunities, and no need to make sacrifices to obtain basic necessities. They might also be seen as indicators of ability that suggest benefit for other people unrelated to physical comfort, such as intellectual rapport.

The consequence is that for someone who does not see significant benefit from these factors, higher quality and more expensive goods are likely to be overpriced compared to their intrinsic utility while lower quality goods may provide more value at the market price.

This tendency is accentuated by low production costs for goods due to technological innovation, which means that frequently, more expensive goods are justified in cost only by their "brand". One might be lead to assume, for example, that a food is more delicious because it has attractive packaging.

The value of brands is not zero. They can represent a consistent level of quality, but more subtly can also influence the perceptions and goals of other people in a way that benefits society. In the absense of a common understanding in society of how to resolve social ills, an interest in brands can serve as a way for someone to direct their actions to help society.

This leads to what is effectively a number of parallel monopolies, because the value of a brand can sometimes be higher when it is more rare or when opinion on its value is controversial. Another OkCupid study, in fact, found exactly this result. People who provoked a strong negative reaction from some users and a strong positive reaction from other users received much more messages than people who were more uniformly rated. [http://blog.okcupid.com/index.php/the-mathematics-of-beauty/]

This combination of brand identity and the promise of higher quality are what reduce competition and allow high profits for a brand, and directly suggest the possible benefit from working less for someone who has goals that require time. Competing products may provide just as much utility at a much cheaper price even if they don't have the same social value.

However, people might also assume that spending more money leads to greater employment, or that buying products specifically made in the United States instead of overseas is the best way to support the economy. There is a simple standard to establish whether this is true. Determine "percent of money I earn that comes from people richer than me", and compare it to "percent of money I spend that goes to people richer than me". If the first is higher, then you are helping to raise employment. If the second is higher, you are making unemployment and income inequality worse.

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This standard is what makes it so a poor person who sells to other poor people should not feel the need to save or work more until they can buy an iPhone from Apple, since 50% or more of the marginal revenues can go to profits and one estimate is that labor cost for assembly is only $8 [http://www.asymco.com/2012/02/22/the-iphone-manufacturing-cost-structure/]. However, someone who sells only to rich people or who is very wealthy would be raising overall employment by purchasing an iPhone.

The logic of "buying American" is more complicated. Suppose you have several choices. You can buy a shirt made overseas that costs $5, of which $4 goes to various workers in the manufacturing and transportation industries who are all poorer than you. Or you can buy a brand-name shirt made overseas that costs $25, of which $10 goes to various workers including people with about the same income as you who live in the United States and designed and marketed the shirt. Or you can buy a brand-name shirt which is advertised as having been made in the United States and costs $30, of which $15 goes to various workers in the US.

In this case it cost $5 more for a US worker to make the shirt instead of someone overseas, because of cost of things like housing and health care in the US. Now suppose that you could buy the $25 shirt and just give the US worker $5; or you could buy the non-brand $5 shirt and give the US worker $25 so they can pay for rent or food. The difference in the first case is that an overseas worker earns $1 for making a shirt and the US worker gets $5 for doing nothing instead of $6 for making a shirt. The difference in the second case is that a minimum-wage American worker gets $25 for doing nothing and other workers, including the overseas worker get a total of $4, with $1 of profit for the business, instead of $15 going to various workers including the one who made the shirt while the other $15 goes to profit.

It might be possible that the owner of the business is also poorer than you, or roughly equal in economic status. But in most cases corporate profits go to people who are already rich. The top 10% in the United States had 75% of net worth and 83% of net financial assets in 2009 [http://www.epi.org/page/-/BriefingPaper292.pdf]. So profit can generally be assumed to go to someone richer than you unless you are also very rich. Evaluating these situations for economic effect, if you buy the $5 shirt then 20% of your spending goes to people richer than you; if you buy the $25 shirt then 60% of your spending goes to people richer than you; and if you buy the $30 shirt that was made in the US then 50% of your spending goes to people richer than you.

Buying the American-made shirt is therefore better for society than the made-overseas, brand-name shirt, but still less useful for the global economy than buying the $5 shirt. The US worker, on the other hand, would probably prefer you buy the $5 shirt and give them the $25 difference.

Since it isn't possible to do this, the next best thing would be to avoid working instead of earning an extra $25, so that the US worker can use their college degree to work for your employer and earn that $25 instead of you.

However, it's also possible that there is a shirt that is not only made in the United States, but also by a company that pays its workers well similar to the high rates offered by Henry Ford in his factory. Maybe $29 goes to labor costs and only $1 to profit. But a "Made in America" tag won't tell you this, so confirming this information will always be difficult and unreliable. The best decision for someone who doesn't care about brands but does care about the economy would be to work less and buy the $5 shirt.

The perhaps unexpected implication of this moral standard is that if the business you work for has a high profit margin, you should discourage poor people from purchasing the products your company sells because it would transfer money from the poor to the rich, the opposite of the desired direction. You would normally want to try to sell to the rich for the simple reason that they have more money, but if you wanted to make it more ethical to sell to the poor there are two ways: by reducing profit margins through a rise in wages, and by encouraging employees to work less so that they are more likely to have a lower income than your company's customers. If the business can hire more workers with a lower average work week, those employees are less likely to buy brands and are more likely to buy products with a low profit margin, where more of the revenues go toward wages in a competitive labor market.

Eventually, if enough people stop buying brands and work less, profits go down and so does inequality, which reduces the deadweight loss from imperfect price discrimination by monopolies. This includes things like housing and also for brands themselves. Instead of selling the iPhone at a 50% profit margin and using tax havens to pay a 9.8% tax rate on profits of $34 billion, Apple might choose to lower prices to retain market share and continue to take advantage of network effects that it would lose if it decided to target only the rich.